Who is Eligible for Personal Bankruptcy?

You might be wondering if you are eligible to file for a personal bankruptcy, and if so, in which state can you file, and which state’s exemptions apply toward your assets.

Who Can File for Bankruptcy?

While there are many things to consider when contemplating personal bankruptcy, here are some basic rules to determine who can file:

“A person that resides or has a domicile, a place of business, or property in the United States” can file for bankruptcy in the United States. 11 U.S.C. 109(a). Notice that there is no requirement that you be a United States citizen.

Subject to a few exceptions (e.g., if you have mostly business related debt or are serving or have served recently in the military), if you want to file for Chapter 7 bankruptcy you must pass the “Means Test.” The Means Test is a calculation of your average gross income for the six calendar months prior to the month in which you want to file. For example, if you want to file in January 2018, your Means Test will be calculated using your total gross income from July 1, 2017 to December 31, 2017. Your average gross income for the six months period is multiplied by 12 to get an “annualized” number which is then compared to an income threshold for your household size. If you are under the threshold then you automatically pass the Means Test, but if you are over the threshold you might still pass if your “Disposable Income” is small enough and there is another lengthy calculation involved for that. The United States Trustee Office periodically updates Means Test threshold numbers at: https://www.justice.gov/ust/means-testing

If you want to file for Chapter 13 bankruptcy you must have “regular income” and enough Disposable Income to fund a repayment plan, must propose a plan which pays in full certain types of debt (e.g., child support arrears, mortgage arrears, priority taxes) while also paying unsecured creditors at least what they would have received in a hypothetical Chapter 7 bankruptcy, and must not have more than $394,725 in non-contingent unliquidated unsecured debt and $1,184,200 in non-contingent unliquidated secured The debt thresholds adjust periodically.

Where Can You File?

If you have recently moved to a new state you need to be aware of some basic rules:

If you’ve had a residence, domicile, place of business, or property in the United States for at least 91 out of the past 180 days then you can file for personal bankruptcy in the federal district court where that residence, domicile, place of business, or property is located. 28 U.S.C. 1408. For example, if you’ve lived in Kansas for the past 91 days then you can file for bankruptcy in the federal district court for Kansas.

The analysis of which state to file in can become complicated if you’ve lived in more than two states in the past 180 days and you should seek the counsel of an experienced bankruptcy attorney.

Which State’s Exemptions Apply for Your Assets?

Each state has its own exemptions for you to apply toward your assets, and some states allow you to choose between the state’s exemptions and the federal exemptions.

Here are some basic rules for determining which exemptions you can use:

If you have lived in your current state for at least the past two years then you use that state’s exemptions.

If you have not lived in your current state for at least the past two years then you must use the exemptions for the state in which you were living for the 180 days prior to the past two years. If that state allows you to choose between the state and federal exemptions then choose whichever allows you to exempt the most assets. But, if that state does not allow non-residents to use its bankruptcy exemptions then you must use the federal bankruptcy exemptions (which in some circumstances might work out better for you anyway).

There is a further restriction for a state’s homestead exemption in that you must have owned your home at least 40 months prior to bankruptcy, otherwise the homestead exemption is capped at $160,375.

The analysis of which state’s exemptions to apply can become complicated if you’ve lived in more than one state in the past few years and you should seek the counsel of an experienced bankruptcy attorney.